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Silver and gold, houses and land: Non-traditional paths to wealth also include real estate, precious metals, coins and antiques

Rick Wagner • Nov 2, 2018 at 12:00 AM

Non-traditional investments can range from the roof over your head or some hunting land to precious metals or coins made from precious metals, not to mention wine, art, antiques or collectibles.

However, Certified Fund Specialist Jonathan Mullins, a private wealth advisor with GAAM Wealth Advisors in Kingsport, said he cautions clients to consider tax consequences and the liquidity of such assets before taking the plunge into non-traditional investments. Still, he said making money and then putting it in savings, stocks, bonds or other more traditional investments isn’t the only way to grow wealth.

Non-traditional investments include precious metals, coins, real estate, intellectual and digital property and art and antiques, according to the website moneyinstructor.com, and another website for howstuffworks.com also includes art, wine and real estate as non-traditional investments.

“You should not go into an investment without examining what your tax consequences are,” Mullins said of a complex webs of deferred depreciation and other methods best left to “accountants, priests and advisors.”

PRECIOUS METALS

According to the moneyinstructor site, the primary precious metals could be called the grandfathers of investing.

“It was the hoarding of gold, silver and to a lesser extent other metals that gave rise to the concept of ‘brokers’ and ‘markets.’ Eventually the demand for these metals gave rise to the concept of currency, which was based on metals, which were held in storage,” the website says. “This is a long way of saying that precious metals are considered by many to be the one investment (along with land) that will maintain value despite market changes in the short term.”

However, the site said the emphasis is on value and not stability since precious metals have a tendency toward price fluctuation. “Many investors feel safe knowing that some of their portfolio is in precious metals and as such they are not dependent on the financial markets or currency. Therefore, there are many benefits to investing in precious metals and having some percentage of a portfolio invested in them can certainly make sense.”

Mullins said a client once invested in gold in his individual retirement account and had to pay brokerage fees to buy and sell it as well as fees for storage at a Maryland depository. He said the client eventually went in another direction when he found that the fees were assessed as a percentage of the value per ounce, meaning as gold went up in value it cost more to store it.

Most precious metals can be purchased in the form of the actual asset (usually in coins or bullion) or they can be purchased in the form of a “contract” giving one the right to buy the precious metal in a certain quantity. Some also invest in precious metals through mining operations which are considered to be valued in a similar manner to the metal by the reasoning that when the price goes up the profits of the mining operation will also rise.

“Gold is by far the most popular investment choice. Much of this has to do with its history and the fact that it is the basis (or has been) for certain currencies. Gold is also used as the standard in the International Monetary Fund, which speaks to its value as a commodity. Most trading in gold is actually done in the form of coins or certified bars, which are called bullion. Gold can be volatile in terms of price fluctuation since it is the most actively traded precious metal as compared to the others,” the moneyinstructor site said.

Other popular precious metals include silver, which the site says is “second in popularity to goal and for various reasons (it) actually has more practical uses from an engineering standpoint. Most of this is due to silver having the highest electrical and thermal conductivity as compared to all other metals. The most popular use for silver is in tableware, jewelry, coins and photography equipment.”

Platinum, the website says, is a “newcomer in some ways since it was not discovered by Europeans until the discovery of the new world. However, before that time it was valued by many of the indigenous peoples of the Americas. Though platinum is more precious than gold it is still not as popular.” It has more industrial uses than the other precious metals because of catalytic properties natural to the metal as well as the fact that it is immune to corrosion. “Platinum is used in jewelry, manufacturing, electrical contacts, dentistry and automobile emission control devices (namely catalytic converters and their offspring). Roughly, platinum is typically valued at twice the value of gold and is traded less actively,” the website says. 

COINS/MONEY

Coins have been increasingly promoted as an alternative investment, with an intrinsic value beyond the precious metal or metals from which they are often made. “This is a valid concept for the gold, silver and platinum coins that have value based on their metal content alone. However, the fact is that most coins do have intrinsic value. Those that are not one of the primary precious metals are extremely susceptible to inflation.”

As for paper money, the old saying is that Confederate money as a rule of thumb is often worth the face value of the bills, although even some of those bills and other bills and coins can be worth quite a bit more and appreciate over time. The problem with both, Mullins said, is that you generally have pay to have it safely stored in a bank or other facility resistant to and/or unlikely to have a catastrophic fire. He said in the aftermath of the Gatlinburg fires in the fall of 2016, cars in garages were found with their engines melted, which requires much more heat than melting most coins or burning paper money. He said home fire resistant safes will last four or five hours at best. 

“Foreign currencies are a subset of this class of investments that offers unique protection against domestic financial trends,” the website says. “As the world goes increasingly global it is easier and easier for the average investor to obtain foreign currencies with easy immediately. Thus, it is likely that foreign currencies will grow to play a much larger role in the investment industry.”

REAL ESTATE

Real estate is one of the better-known non-traditional investments.

“The first large purpose of most adults is usually a home. Real estate is also a well-known income-producing asset due to the ever-increasing need for housing. Another aspect of real estate which is often neglected, are the underlying mineral rights which in some cases can be worth more than the property itself — especially if large amounts of oil reserves are involved,” the website says. “Real estate is satisfying to some people because of the fact it is a tangible physical asset unlike most financial investment products. Real estate continues to produce returns close to the average over the long term of the stock market. As long as that continues it will continue to be a primary alternative investment.”

Mulllins said that folks who like to fix up houses can avoid capital gains taxes “if it’s your personal residence and you live in it two of five years.” The exemption is up to $500,000 for a married couple or $250,000 for a single person. “You can’t use your savings bond like that,” he said. In addition, owners of rental properties can take depreciation and deducts upkeep expenses and property taxes to offset federal income taxes on rent they receive.

However, with flipping if you flip the house too quickly, don’t live their long enough or make too much of a profit, he said federal income taxes can eat into the profits at 28 percent, which is higher than the tax on stock profits. 

On the other hand, another investment can be in land used for hunting, which gives the investor a tangible use for the land and then the possibility of selling it or subdividing it later at a profit, although property tax laws in Tennessee’s “greenbelt” program charge rollback taxes on property coverted from farming or forestry to uses such as residential subdivisions.

INTELLECTUAL AND DIGITAL PROPERTY

One key characteristic of an investment is that it is an entity that produces or grows on its own rather than keeping static value or losing value, the website says. “This certainly applies to intellectual property. As the digital economy continues to grow it is likely that this aspect of the economy will continue to grow desperate the fact that the legal system is still catching up with it. Digital assets are traded daily through various channels.

“Some digital assets command values in the triple digits. Even more amazing is the fact that most of the digital assets commanding the highest values are coming from the gaming industry. As this continues to grow it is expected that other segments of the economy besides the recreation/leisure channel will begin to value and trade digital property.”

Mullins said apps are an example, and in the music world said recalled how former Beatle Paul McCartney and the late Michael Jackson bought parts of each others music catalogs. However, he said those royalties ended up hurting McCartney financially when he and Health Mills divorced and their prenuptial agreement fell apart because the court found he had not provided a full accounting of his income and assets, including royalties.

ART, ANTIQUES AND WINE

Art and antiques have a longer history as an investment than most traditional investments, and the moneyinstructor website said the emergence of eBay has had a positive impact on it.

“It’s terrible to have a liquid invesmtent that you can’t really use,” Mullin said of wine investing. However, said that some folks mix business and pleasure, buying a case of wine and drinking some but keeping the rest to see if it increases in value, or as part of a collecting hobby or may get lucky and sell a Mickey Mantle baseball card they bought for 25 cents for much more. However, like with real estate, he said the catch is there may be taxes on the profit, although Mullins said that profit could be higher than the last generation because of sites like eBay.

“Long before the stock market existed, prized art pieces were garnering values many times in excess of their material components. Many antiques also maintain value easily and grow in value over time,” the website says. “Corporate giant eBbay has done much to increase the value of these types of assets as an investment. Before eBay become a standard form of doing business for collectibles, finding a buyer for one often required inordinate amounts of time and research. However, most owners are easily able to find a buyer and receive a respectable price simply by listing their item on eBay and handling the transport of goods themselves. This is one reason collectibles such as art and antiques will continue to play a larger role in the investment world.”

However, Mullins said folks looking to invest in such things should be sure there is a market when it comes times to sell.

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